U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
2015
OR
[ ] TRANSITION
REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
Commission File Number 000-28753
FREESTONE RESOURCES, INC.
(Exact name of small business issuer as specified
in its charter)
Nevada |
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90-0514308 |
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
Republic Center, Suite 1350
325 N. St. Paul Street Dallas, TX 75201
(Address of principal executive offices)
(214) 880-4870
(Issuer's telephone number)
(Former name, former address
and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days: Yes [X] No [ ]
Indicate by check mark whether the Registrant
is a large accredited filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accredited filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act:
Large Accredited Filer [ ] |
Accelerated Filer [ ] |
|
Non-Accredited Filer [ ] |
Smaller Reporting Company [X] |
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate by check mark whether the registrant
has submitted electronically and posted on its website, if any, every Interactive File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (SS325.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files), Yes [X] No [ ]
As of November 14, 2015 there were 86,138,117 shares of Common
Stock of the issuer outstanding.
Freestone
Resources Inc. and Subsidiaries |
Consolidated
Balance Sheets |
As
of September 30, 2015 and June 30, 2015 |
(unaudited) |
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September 30, |
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June 30, |
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2015 |
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2015 |
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Successor |
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Successor |
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ASSETS |
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Current Assets |
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Cash |
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$ |
242,163 |
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$ |
38,372 |
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Accounts receivable |
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123,096 |
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98,208 |
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Inventory |
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100,708 |
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122,000 |
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Prepaid and Other
Assets |
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66,832 |
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51,151 |
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Total Current Assets |
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532,799 |
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309,731 |
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Property, plant and equipment, net of accumulated depreciation
of |
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$36,624 and $16,564 |
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1,682,248 |
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1,665,430 |
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TOTAL ASSETS |
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$ |
2,215,047 |
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$ |
1,975,161 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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$ |
186,504 |
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$ |
124,046 |
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Environmental
liability |
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32,000 |
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32,000 |
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Current portion of long term debt |
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142,353 |
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56,051 |
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Total Current Liabilities |
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360,857 |
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212,097 |
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Asset Retirement Obligation |
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- |
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14,470 |
Long term debt, less current portion |
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1,058,265 |
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1,104,913 |
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TOTAL LIABILITIES |
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1,419,122 |
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1,331,480 |
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STOCKHOLDERS' EQUITY |
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Common stock, $.001 par value, 100,000,000
shares authorized, |
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86,138,177 and 81,088,177 shares issued and outstanding |
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86,138 |
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81,088 |
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Additional paid in capital |
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20,109,728 |
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19,488,278 |
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Accumulated deficit |
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(19,428,160) |
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(18,925,985) |
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767,706 |
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643,381 |
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Non-Controlling Interest |
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28,219 |
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300 |
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795,925 |
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643,681 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ |
2,215,047 |
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$ |
1,975,161 |
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The
Accompanying Notes Are An Integral Part of These Unaudited Consolidated Financial Statements |
Freestone
Resources Inc. and Subsidiaries |
Consolidated
Statements of Operations |
(Unaudited) |
Three
Months Ended September 30, 2015 and 2014 |
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September 30, |
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September 30, |
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2015 |
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2014 |
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Successor |
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Predecessor |
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REVENUE |
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Tipping Fee Revenue |
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$ |
153,783 |
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$ |
126,236 |
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Tire Repair Revenue |
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113,291 |
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151,392 |
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Used Tire Sales |
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58,875 |
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59,460 |
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Scrap Material Sales |
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11,672 |
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16,930 |
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Total Revenue |
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337,621 |
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354,018 |
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COSTS OF REVENUE |
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Tipping Fee Operations |
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62,639 |
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73,206 |
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Tire Repair |
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36,488 |
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36,995 |
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Used Tire Sales |
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28,464 |
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11,113 |
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Tire Disposal |
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63,574 |
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35,687 |
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Total Cost of Revenue |
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191,165 |
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157,001 |
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GROSS PROFIT |
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146,456 |
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197,017 |
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OPERATING EXPENSES |
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Lease Operating Expenses |
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402 |
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- |
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Selling |
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52,228 |
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43,731 |
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General and Administrative |
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553,281 |
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82,235 |
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Depreciation and Amortization |
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27,657 |
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15,163 |
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Total Operating Expense |
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633,568 |
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141,129 |
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INCOME (LOSS) FROM OPERATIONS |
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(487,112) |
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55,888 |
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OTHER INCOME (EXPENSES) |
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Interest Expense, net |
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(33,248) |
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(2,966) |
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(33,248) |
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(2,966) |
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NET INCOME(LOSS) |
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(520,360) |
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52,922 |
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Loss Attributable to Non-Controlling Interest |
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18,185 |
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- |
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NET INCOME(LOSS) ATTRIBUTABLE TO FREESTONE |
$ |
(502,175) |
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$ |
52,922 |
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Basic and diluted income (loss) per share |
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Net income (loss) per share |
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(0.01) |
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Weighted average shares outstanding |
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Basic and diluted |
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81,509,916 |
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The
Accompanying Notes Are An Integral Part of These Unaudited Consolidated Financial Statements |
Freestone
Resources Inc. and Subsidiaries |
Consolidated
Statements of Cash Flow |
(Unaudited) |
Three
Months Ended September 30, 2015 and 2014 |
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September 30, |
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September 30, |
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2015 |
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2014 |
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Successor |
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Predecessor |
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CASH FLOW
FROM OPERATING ACTIVITIES |
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Net Income (Loss) |
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$ |
(520,360) |
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$ |
52,922 |
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Adjustments to reconcile net income (loss) to net cash
provided |
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by operating activities: |
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Depreciation |
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27,657 |
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15,163 |
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Shares Issued for Services |
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256,500 |
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- |
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Changes in operating assets and liabilities |
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(Increase) in Accounts Receivable |
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(24,588) |
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(26,439) |
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Decrease in Inventory |
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21,292 |
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537 |
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(Increase) Decrease in Prepaid Expenses |
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(15,681) |
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6,453 |
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Increase (Decrease) in Accounts Payable and Accrued
Liabilities |
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113,742 |
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(12,209) |
Net Cash Provided by Operating
Activities |
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(141,438) |
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36,427 |
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CASH FLOW FROM INVESTING
ACTIVITIES |
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Purchase of Fixed Assets |
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(4,947) |
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- |
Net Cash Used in Investing
Activities |
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(4,947) |
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- |
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CASH FLOW FROM FINANCING
ACTIVITIES |
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Sale of Stock for Cash |
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350,000 |
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- |
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Contributions to LLC by Holders of Non-Controlling
Interest in FDEP |
14,520 |
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- |
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Repayment of Debt |
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(14,344) |
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(12,813) |
Net Cash Used In Financing
Activities |
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350,176 |
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(12,813) |
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Net Decrease in Cash |
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203,791 |
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23,614 |
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Cash at Beginning of the Period |
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38,372 |
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30,465 |
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Cash at the End of the Period |
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$ |
242,163 |
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$ |
54,079 |
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Cash Transactions |
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Total Amount of Interest
Paid in Cash |
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$ |
2,092 |
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$ |
2,966 |
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Non Cash financing and Investing
Activities |
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Notes Payable for Purchase
of Assets |
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$ |
53,998 |
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$ |
- |
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ARO Assumed By Purchaser
in Exchange for |
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O&G Property |
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$ |
14,470 |
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$ |
- |
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Shares Issued for O&G
Interest |
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$ |
20,000 |
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$ |
- |
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Expenses Paid
Directly by Holders of Non-Controlling |
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In FDEP |
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$ |
31,584 |
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$ |
- |
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The
Accompanying Notes Are An Integral Part of These Unaudited Consolidated Financial Statements |
Freestone
Resources, Inc.
Notes to Unaudited
Consolidated Financial Statements
September
30, 2015
(Unaudited)
NOTE 1 – NATURE OF ACTIVITIES
AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities, History
and Organization:
Freestone Resources,
Inc. (the “Company” or “Freestone”) is an oil and gas technology development company that is actively
developing and marketing technologies and solvents designed to benefit various sectors in the oil and gas industry. The Company
has re-launched its Petrozene™ solvent after developing a new and improved formula. Petrozene™ is primarily used to
dissolve paraffin buildup, and it is primarily used for pipelines, oil storage tanks, oil sludge build up, de-emulsification,
well treatment, as a corrosion inhibitor and as a catalyst in opening up formations thereby aiding in oil production.
On June 24,
2015 Freestone purchased 100% of the common stock of C.C. Crawford Retreading Company, Inc. (“CTR”), a Texas corporation.
CTR is an Off-The-Road (“OTR”) tire company located in Ennis, Texas, and a wholly owned subsidiary of Freestone. CTR’s
primary business is to repair, recycle, dispose of and sell OTR tires, which are used on large, industrial equipment. Freestone
made the decision to purchase CTR in order to utilize the CTR facility for the production of Petrozene™.
On June 24,
2015 the Company formed Freestone Dynamis Energy Products, LLC (“FDEP”), a Delaware limited liability company, with
Dynamis Energy, LLC (“Dynamis”). FDEP was formed in order to operate and manage the specialized pyrolysis process
that is used to create Petrozene™ and other byproducts of value. Freestone chose to work with Dynamis based on their extensive
engineering and waste-to-energy expertise. Freestone owns a 70% member interest in FDEP.
The acquisition
of CTR and the formation of FDEP have allowed Freestone to vertically integrate the Petrozene™ product line. CTR will remain
an auxiliary company that will maintain existing operations that complement the efforts of FDEP and Freestone.
Unaudited Interim Financial Statements:
The accompanying
unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the Securities and Exchange Commission. These financial statements
are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary to
present fairly the balance sheet, statement of operations, statement of stockholders’ equity and statement of cash flows
for the periods presented in accordance with accounting principles generally accepted in the United States. Certain information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. It is presumed that users
of this interim financial information have read or have access to the audited financial statements and footnote disclosure for
the preceding fiscal year contained in the Company’s Annual Report on Form 10-K. The results of operations for the three
months ended September 30, 2015 are not necessarily indicative of the results of operations for the full year or any other interim
period. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis
and Financial Statements and notes thereto included in the Company’s June 30, 2015 Form 10-K.
Predecessor
Accounting:
On June 24,
2015 Freestone acquired 100% of the outstanding common stock of CTR. The operations of Freestone were insignificant in comparison
to CTR, so the consolidated financial statements included for the quarter ended September 30, 2014 are presented under predecessor
entity reporting wherein the prior historical information consists solely of CTR’s results of operations and cash flows.
The consolidated balance sheets as of September 30, 2015 and June 30, 2015 and results of operations and cash flows for the quarter
ended September 30, 2015 are presented under successor entity reporting.
Recently Issued Accounting Pronouncements:
The Company
does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flow.
NOTE 2
– INVENTORY
Inventory of
the predecessor company is carried at lower of cost or market. At acquisition the Company’s inventory was revalued at fair
market value as part of the purchase price allocation. The Company’s inventory consists of processed rubber from disposed
tires carried at cost of processing, and used tires for sale carried at the cost of repairs. As of September 30, 2015 and June
30, 2015 inventory consisted of:
| |
9/30/15 | |
6/30/15 |
Crum Rubber for Processing | |
$ | 10,246 | | |
$ | 10,246 | |
Used Tire for Resale | |
| 90,462 | | |
| 111,754 | |
| |
$ | 100,708 | | |
$ | 122,000 | |
NOTE
3 – PROPERTY, PLANT AND EQUIPMENT
| |
| |
|
At September 30, 2015 and June 30, 2015 Property, Plant and Equipment was as follows: | |
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| |
| |
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| |
| 9/30/15 | | |
| 6/30/15 | |
Land | |
$ | 360,000 | | |
$ | 360,000 | |
Buildings and Improvements | |
| 700,000 | | |
| 700,000 | |
Computers and Office Furniture | |
| 21,967 | | |
| 21,967 | |
Automotive Equipment | |
| 94,829 | | |
| 78,100 | |
Machinery and Equipment | |
| 542,076 | | |
| 499,860 | |
Oil and gas properties used for research and development | |
| — | | |
| 22,067 | |
| |
| 1,718,872 | | |
| 1,681,994 | |
Less Accumulated Depreciation | |
| 36,624 | | |
| 16,654 | |
| |
$ | 1,682,248 | | |
$ | 1,665,430 | |
Depreciation expense was $27,657 and $15,163 for the three months ended September 30, 2015(Successor) and September 30, 2014 (Predecessor), respectively.
NOTE
4 – ENVIRONMENTAL LIABILITY
The environmental
liability was calculated by estimating the costs associated with the various disposal costs that would be necessary to remove
the tires from the CTR permitted facility. Upon acquisition of CTR by Freestone the liability was reduced to $32,000 (Successor)
as part of the purchase price allocation, and the revaluation of assets and liability to fair market value. The reduction was
due to the formation of FDEP. CTR will convert the majority of the tires into crum rubber, and sell it to FDEP as a feedstock
for its specialized pyrolysis operations. The remaining $32,000 is an estimate of cost of disposing of the tires that are not
acceptable for use as feedstock.
NOTE
5 – NOTES PAYABLE
At September 30, 2015 and June 30, 2015 Notes Payable were as follows: | |
| |
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| |
| |
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| |
9/30/15 | |
6/30/15 |
Note payable to bank bearing interest at 4.5% with monthly payment of $390 maturing September, 2017. The note is secured by an automobile | |
$ | 8,929 | | |
$ | 9,989 | |
| |
| | | |
| | |
Note payable to bank bearing interest at 6.5% with monthly payment of $4,892 maturing November, 2017. The note is secured by machinery and equipment | |
| 118,378 | | |
| 130,975 | |
| |
| | | |
| | |
Note payable to seller in connection with purchase of CTR bearing interest at 12% maturing June, 2019. Interest only payable for the first year. Monthly payment of $34,991 thereafter. Secured by the common stock and assets of CTR | |
| 1,020,000 | | |
| 1,020,000 | |
| |
| | | |
| | |
Note payable to bank bearing interest at 4.95% with monthly payments of $315 maturing August, 2019. The note is secured by equipment | |
| 13,188 | | |
| — | |
| |
| | | |
| | |
Notes payable to bank bearing interest 3.95% with monthly payments of $489 maturing September, 2020. The notes is secured by equipment | |
| 26,562 | | |
| — | |
| |
| | | |
| | |
Note payable to bank bearing interest at 5.69% with monthly payments of $264 maturing August, 2020. The note is secured by an automobile | |
| 13,561 | | |
| — | |
| |
| 1,200,618 | | |
| 1,160,964 | |
| |
| | | |
| | |
Less current maturities | |
| (142,353 | ) | |
| (56,051 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
| |
$ | 1,058,265 | | |
$ | 1,104,913 | |
| |
| | | |
| | |
| |
| | | |
| | |
At
September 30, 2015 future maturities of long term debt were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ending September 30: |
|
|
|
|
|
|
2016 |
$ |
142,353
|
|
|
|
|
2017 |
|
390,278
|
|
|
|
|
2018 |
|
363,092 |
|
|
|
|
2019
2020 |
|
296,334
8.561 |
|
|
|
|
|
$ |
1,200,618
|
|
|
|
NOTE 6 – EQUITY TRANSACTIONS
The Company
is authorized to issue 100,000,000 common shares at a par value of $0.001 per share. These shares have full voting rights. At
September 30, 2015 and June 30, 2015, there were 86,138,117and 81,088,117 respectively, common shares outstanding. During the
three months ended September 30, 2015 the Company sold 3,500,000 shares for cash proceeds of $350,000.
On September
23, 2015 the Company issued shares of the Company’s common stock to certain directors, officers and consultants for services
rendered to the Company. Clayton Carter, the Company’s Director and Chief Executive Officer, received 600,000 shares of
the Company’s common stock, G. Don Edwards, the Company’s Director and Chief Investment Officer, received 600,000
shares of the Company’s common stock, and James Carroll, the Company’s Director and Chief Financial Officer received
50,000 shares of the Company’s common stock. The Company also issued 100,000 shares to consultants as consideration for
services rendered to the Company. The stock was valued at $.19 a share based on the closing price on the date of award.
On September
14, 2015 the Company repurchased an 8.25% revenue interest in the Company’s Rogers Oil and Gas Lease for $20,000. The Company
issued 200,000 shares of common stock at $.10 to satisfy the debt.
Stock Warrant:
On July 30,
2015 the Company reached an agreement with the holders to cancel the 1,000,000 warrants outstanding which would have expired November
15, 2015.
In connection
with the sale of 5,000,000 shares of the company common stock associated with the purchase of CTR the Company issued 5,000,000
warrants to purchase shares of common stock at 80% of the average closing bid and sale cost over the previous ten days at exercise
date. The warrants vest immediately and have a one year term.
NOTE 7
– THE ACQUISITION OF C.C. CRAWFORD RETREADING COMPANY, INC.
On June 24,
2015 the Company acquired 100% of the outstanding common stock of C.C. Crawford Retreading Co., Inc., a privately held company,
for an aggregate price of $1,520,000. Terms of the purchase were $500,000 cash at closing and a note payable to the seller for
$1,020,000. The cash down payments was paid direct to a seller by a third party form sale of stock proceeds. The Company estimated
the fair value of assets acquired net of liabilities assumed to be $1,648,750 resulting in a bargain purchase gain of $128,750.
See notes to the Company’s June 30, 2015 10K for details of the purchase price allocation and pro forma financial statements.
Unaudited pro
forma results of operations data for the Quarter ended September 30, 2014 as if the Companies had been combined as of July 1,
2014, follow. The pro forma results include estimates and assumptions which management believes are reasonable. However pro form
results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not
necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated
or which may result in the future.
Revenue | |
$ | 354,018 | |
| |
| | |
Net Loss | |
$ | (34,563 | ) |
| |
| | |
E.P.S. | |
$ | 0.00 | |
| |
| | |
Weighted Average Shares Outstanding | |
| 78,543,177 | |
NOTE 8
– THE FORMATION OF FREESTONE DYNAMIS ENERGY PRODUCTS, LLC.
On June 24,
2015 the Company entered into an agreement with Dynamis in order to form the joint venture FDEP (Freestone Dynamis Energy Products,
LLC.), a Delaware limited liability company. Freestone determined to enter into a joint venture with Dynamis based on their track
record and experience in the waste-to-energy industry, and their ability to provide the necessary funding to fully integrate the
production, marketing and sale of Petrozene™ to current and future customers. The terms of the joint venture between the
Company and Dynamis are as follows:
| · | Freestone
owns a 70% member interest in FDEP for licensing the rights to use Petrozene™ to
FDEP; and |
| · | Dynamis
owns a 30% member interest FDEP in exchange providing funding up to $5,000,000 to operate
the joint venture, and purchase a continuous-feed pyrolysis machine capable of producing
a product that can be used to produce Petrozene™; and |
| · | FDEP
will be leasing employees from CTR, and said employees will operate the machine. FDEP
will reimburse CTR for the leased employees; and |
| · | FDEP
has the right, but not the obligation to purchase CTR from Freestone through cash compensation
to Freestone, the issuance of additional units in FDEP to Freestone or a combination
of both cash and units in FDEP as mutually agreed upon by FDEP and Freestone; and |
| · | FDEP
will lease a building from CTR in order to operate the specialized pyrolysis technology
for payment of either the ad valorem taxes associated with the rented property or $1,000
per month depending on which amount is the greater of the two; and |
| · | Dynamis
will receive 80% of the distributions from FDEP until they have reached a 25% initial
rate of return on funds invested into the joint venture. Once the 25% initial rate of
return threshold is meet all distributions from FDEP will be split according to the 70
/ 30 member interest of FDEP owned by the Company and Dynamis. |
On June 24,
2015 FDEP simultaneously entered into a lease agreement with a company that has developed a continuous-feed pyrolysis technology
that will be operated by FDEP at the Company’s facility in Ennis, Texas. FDEP and the company that developed the pyrolysis
technology will split the revenues generated from the machine. FDEP will receive 70% of the revenues generated from the machine,
and the company providing the continuous-feed pyrolysis technology will receive 30% of the revenues. This revenue split will remain
in place so long as the machine is operating at the Company’s facility in Ennis, Texas. The agreement between the two companies
allows FDEP the opportunity to ensure that the technology continues to operate properly under the strict conditions that are necessary
to produce Petrozene™. If the leased pyrolysis machine operates within certain, predefined parameters then FDEP has the
right to purchase additional machines.
During the
quarter ended September 30, 2015, Dynamis paid certain engineering and general administrative costs on behalf
of FDEP, which are shown on the Statement of Cash Flows as a non-cash financing activity.
NOTE 9
– GOING CONCERN
As of the date
of this quarterly report, there is doubt regarding the Company’s ability to continue as a going concern as we have not generated
sufficient cash flows to fund our business operations and loan commitments. Our future success and viability, therefore,
are dependent upon our ability to generate capital financing. The failure to generate sufficient revenues or raise
additional capital may have a material and adverse effect upon the Company and our shareholders.
The Company
formed FDEP in order to vertically integrate its Petrozene™ product line, and utilize a specialized pyrolysis process in
order to produce other byproducts of value that will generate revenue for FDEP. In turn, the ability of FDEP to process large
quantities of OTR tires will allow the Company to increase the amount of OTR tires it can dispose of and process, which will generate
additional revenue of the Company. Additionally, the Company intends to raise equity or debt financing that will allow the Company
to expand its current operations.
NOTE 10 – COMMITMENTS
AND CONTINGENCIES
The Company
leases office space in Dallas, TX under a non-cancelable operating lease that expires in July 2017 and warehouse space in Ennis,
TX under a one year lease with a purchase option for $260,000. Future minimum lease payments are as follows:
Year
End June 30 |
|
Amount
|
2016 |
|
34,684
|
2017 |
|
26,545
|
2018 |
|
1,884
|
Total |
|
68,113
|
Rent expense,
included in general and administrative expenses, totaled approximately $7,621 for the three months ended September 30, 2015 (Successor).
The predecessor had no lease expense for the three months ended September 30, 2014.
Freestone has
royalty and commission agreements with certain consultants related to the sale of Petrozene™ for their work in the re-launch
of the Petrozene™ product line. These royalty and commission agreements range from 2.5% to 7.5% of the net income
the Company receives from Petrozene™ sales, and the agreements also have special royalty provisions for certain customers
that expire on April 14, 2016.
NOTE 11
– RELATED PARTY TRANSACTIONS
One of the consultants
who has a royalty and commission agreement as discussed in note 10 is related party and the brother of the Chief Executive Officer
of the Company.
On July 25, 2015 Company
sold 3,500,000 shares at $0.10 per share to provide funding of subsequent costs associated with the acquisition of CTR, as well
as general working capital for the Company. This transaction made Gerald M. Johnson a controlling shareholder of the Company.
On September
14, 2015 the Company repurchased an 8.25% revenue interest in the Company’s Rogers Oil and Gas Lease for $20,000 from Mr.
Johnson. The Company issued 200,000 shares of common stock at $.10 to satisfy the debt.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS
This report
contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set
forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities
and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.
General
Freestone Resources,
Inc. (the “Company” or “Freestone”), a Nevada corporation, is an oil and gas technology development company
that is actively developing and marketing technologies and solvents designed to benefit various sectors in the oil and gas industry.
The Company has re-launched its Petrozene™ solvent after developing a new and improved formula. Petrozene™ is primarily
used to dissolve paraffin buildup, and it is primarily used for pipelines, oil storage tanks, oil sludge build up, de-emulsification,
well treatment, as a corrosion inhibitor and as a catalyst in opening up formations thereby aiding in oil production.
On June 24,
2015 Freestone purchased 100% of the common stock of C.C. Crawford Retreading Company, Inc. (“CTR”), a Texas corporation.
CTR is an Off-The-Road (“OTR”) tire company located in Ennis, Texas, and a wholly owned subsidiary of Freestone. CTR’s
primary business is to repair, recycle, dispose of and sell OTR tires, which are used on large, industrial equipment. Freestone
made the decision to purchased CTR in order to utilize the CTR facility for the production of Petrozene™.
On June 24,
2015 the Company formed Freestone Dynamis Energy Products, LLC (“FDEP”) with Dynamis Energy, LLC (“Dynamis”).
FDEP was formed in order to operate and manage the specialized pyrolysis process that is used to create Petrozene™ and other
byproducts of value. Freestone chose to work with Dynamis based on their extensive engineering and waste-to-energy expertise.
Freestone owns a 70% member interest in FDEP.
The acquisition
of CTR and the formation of FDEP have allowed Freestone to vertically integrate the Petrozene™ product line. CTR will remain
an auxiliary company that will maintain existing operations that complement the efforts of FDEP and Freestone.
The Company
owns a 33.33% interest in Aqueous Services, LLC (“Aqueous”). Aqueous is a full water management company with access
to a fresh water well that has been permitted to up to one thousand five hundred acre-feet of water per annum.
Results of Operations
Three months ended September 30,
2015 (Successor) compared to three months ended September 30, 2014 (Predecessor)
Revenue –
Our revenue for the three months ended September 30,, 2015 (Successor) was $337,621 compared to $354,018 for the three months
ended September 30, 2014 (Predecessor) due primarily to a decrease in tire repair revenue.
Cost of Revenues
– Cost of revenue increased from $157,001 for the three months ended September 30, 2014 (Predecessor) to $191,165 for
the three months ended September 30, 2015 (Successor). This was primarily a result of a $27,887 increase in disposal costs. Use
tire cost increase by $17,351 due to the adjustment of inventory to fair value at acquisition.
Operating
Expense – Total operating expenses for the three months ended September 30, 2015 (Successor) were $633,568 consisting
of lease operating costs of $402, depreciation of $27,657, selling costs of $52,228 and general and administrative costs of $533,281
compared to the operating cost for the three months ended September 30, 2014 (Predecessor) of $141,129 consisting of depreciation
of $15,163, selling costs of $43,731 and general and administrative cost of $82,235. The increase was primarily due to the inclusion
of Freestone resources and the costs associated with being public company and the acquisition of CTR. Specific costs included
$236,500 of shares issued for services, $88,798 of profession fees, and $28,375 of payroll. The increase in depreciation expense
was due to the write up of the acquired assets to fair value at acquisition. In addition the Company incurred $60,618 in startup
cost for its FDEP operations.
Other Income
and Expenses – Other income and expense for the three months ended September 30, 2015 (Successor) consisted of $33,248
of interest expense compared to other income and expense for the three months ended September 30, 2014 (Predecessor) consisting
of $2,966 of interest expense. The increase in interest expense was due to the debt taken on to finance the purchase of CTR.
Net Income
(Loss)
Net loss for
the three months ended September 30, 2015 (Successor) was $502,175 compared to net income of $52,922 for the three months ended
September 30, 2014 (Predecessor). The loss was due to the expenses of Freestone as detailed above. CTR’s net
income for the period September 30, 2015 was $22,843. The decrease of $30,840 from September 30, 2014 (Predecessor) was due largely
to the decrease in revenue.
Liquidity and Capital Resources
The Company
has little cash reserves and liquidity to the extent we receive it from operations and through the sale of common stock.
The accompanying
financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As of the date of this annual report, there is doubt regarding the Company’s
ability to continue as a going concern as we have not generated sufficient cash flows to fund our business operations and loan
commitments. Our future success and viability, therefore, are dependent upon our ability to generate capital financing. The
failure to generate sufficient revenues or raise additional capital may have a material and adverse effect upon the Company and
our shareholders.
The Company
formed FDEP in order to vertically integrate its Petrozene™ product line, and utilize a specialized pyrolysis process in
order to produce other byproducts of value that will generate revenue for FDEP. In turn, the ability of FDEP to process large
quantities of OTR tires will allow the Company to increase the amount of OTR tires it can dispose of and process, which will generate
additional revenue of the Company. Additionally, the Company intends to raise equity or debt financing that will allow the Company
to expand its current operations.
Net cash used in operations was $141,438
for the three months ended September 30, 2015 (Successor) compared to net cash provided by operations of $36,427 for the three
months ended September 30, 2014 (Predecessor). The change was due to the increase costs from the addition of Freestone’s
operations to the predecessor financials. The cash used in operations was offset by $350,000 proceeds from the sale of Freestone
common stock.
Employees
As of September 30, 2015 CTR had
14 full time employees. Freestone has four employees.
Need for Additional Financing
The Company
is uncertain of its ability to generate sufficient liquidity from its operations so the need for additional funding may be necessary. The
Company may sell stock and/or issue additional debt to raise capital to accelerate its growth.
ITEM 3: QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
and Procedures
We carried out
an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2015. This evaluation was accomplished under the supervision
and with the participation of our chief executive officer/principal executive officer, and chief financial officer/principal financial
officer who concluded that our disclosure controls and procedures are not effective.
Based upon an
evaluation conducted for the period ended September 30, 2015, our Chief Executive and Chief Financial Officer as of September
30, 2015 and as of the date of this Report, has concluded that as of the end of the periods covered by this report, we have identified
the following material weakness of our internal controls:
|
● |
Lack of sufficient accounting staff which
results in a lack of segregation of duties necessary for a good system of internal control and financial statement presentation. |
Changes in Internal Controls over
Financial Reporting
We have
not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this
report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART II
Items No. 1, 3, 4, 5 - Not Applicable.
Item 6 - Exhibits and Reports
on Form 8-K
| (a) | The
Company filed a Form 8-K on September 24, 2015 related the Unregistered Sales of Equity
Securities. |
(b) Exhibits
Exhibit Number
31.1 |
Certification of Chief
Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
2002. |
|
|
31.2 |
Certification of Chief Financial Officer,
pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
Certification of Chief Executive Officer
and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
SIGNATURES
In accordance with the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FREESTONE RESOURCES, INC.
By /s/ Clayton Carter
Clayton Carter, CEO
Date: November 12, 2015
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Clayton Carter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Freestone
Resources, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report
any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: November 12, 2015
/s/ Clayton Carter
Clayton Carter
Chief Executive Officer
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, James F. Carroll, certify that:
1. I have reviewed this quarterly report on Form 10-Q/of Freestone
Resources, Inc.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report
any change to the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: November 12, 2015
/s/ James F. Carroll
James F. Carroll
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report
of Freestone Resources, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2015 as
filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and
on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. the
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.
Dated: November 12, 2015
/s/ Clayton Carter
Name: Clayton Carter
Title: President and Chief Executive Officer
Dated: November 12, 2015
/s/ James F. Carroll
James F. Carroll
Chief Financial Officer